Rate banding

[Belgarath]

This really is a question for Relius, but perhaps some of you have dealt with it already. 

Suppose you have a midpoint EBAR (for HCE's) of 8.740. So any EBAR's within 5% above or below this midpoint are considered to have an EBAR of 8.740. This gives you a range of 9.177 to 8.303.

In the Relius testing, it uses the LOW of 8.303 for the EBAR in the testing. So a HCE with an unbanded EBAR of 9.1, for example, is in the testing at 8.303. Is this correct? I thought that the testing would have to use use the midpoint of 8.740.

[ratherbereading]

Honestly, all we look at in our Relius test is if it passed 401(a)(4) non-discrim testing.  I have no idea how to figure out EBARS and I don't think I want to !

[C. B. Zeller]

I don't use Relius, so I can only comment on the general testing question.

When grouping EBARs, you treat every person in the range as having an EBAR equal to the midpoint. But, practically speaking, is there any difference? They will all be in the same rate group regardless. Maybe there is a side-effect of banding that I am not thinking of.

And, ratherbereading, here it is whether you want it or not: EBAR = contribution * (1 + interest rate) ^ (retirement age - current age) / APR / monthly comp

[duckthing]

Just in case you didn't already see it: https://benefitslink.com/boards/index.php?/topic/54494-rate-banding/ has some good (hopefully useful) discussion. Hopefully Relius was able to get back to you on this as well!

[Belgarath]

C.B. - I think you hit the nail on the head. Although it LOOKS funny (on the Relius report) to have the bottom of the rate band used for the HC, (and not for the NHC) this is only for purposes of the 70% ratio test for the rate group, and all the people in that band are included. For purposes of the ABPT, then "real" benefit percentages are used. So I think it is all ok.